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Friday, August 1, 2014

The growing trend of inversions – American corporations
acquiring smaller overseas corporations to legally avoid paying
corporate income tax in the United States – has sparked editorials,
blog posts, and letters to the editor. Nearly all of them are
clamoring for “closing loopholes” and discouraging inversions.

You really can't blame the companies. The board of directors of
these companies defecting overseas have a duty to act in the best
interest of the shareholders, not Uncle Sam. That included deciding
which country to headquarter in.

If Congress passes bills that closes loopholes and discourages
inversions, companies will still find new ways around it. It's just
like keeping a dog inside the fence. It will find a hole and go
free. The owner will fix the hole, and the dog will find another
hole. Eventually, all the holes will be fixed. Then, the dog will
dig its own hole (I had a dog that did that).

How about encouraging American companies to stay? Out of all the
editorials, blog posts, and letters to the editor that I found were
in response to the inversion trend, I found one that suggested do
that – making the U.S. a tax haven. In Could
the U.S. Become a Tax Haven?,
Jordan Weissman wrote that the corporate income tax originated in the
early 20th
century, an era before American. companies went global. As American
companies did expand globally, they discovered tax haven countries
such as Ireland and the Cayman Islands. Since then, the U.S. has
been battling to tax overseas profits. “Instead of fighting tax
havens, America could consider joining them,” Weissman wrote in the
last sentence of his commentary.

If the United States becomes a
tax haven, not only will American companies find it advantageous to
stay, they'll find it advantageous to expand in the U.S. instead of
elsewhere, and bring overseas operations to the U.S., creating jobs
in the U.S. along the way.

A bill has been introduced in
both the house and senate that can transform the United States into a
tax haven. The
FairTax bill (H.R.
25and
S.B.122)
proposes a national sales tax on new goods and services to replace
the current personal and corporate income tax. As part of the
FairTax, all households would get a prebate (a rebate paid in
advance) every month for sales tax paid for purchases up to the
poverty level for that size of household. The FairTax bill also calls
for the repeal of the16th Amendment, the constitutional amendment
that authorized the federal income tax.

The
FairTax compels everyone (citizens, tourists, undocumented persons,
and even criminals) in the United States to pay taxes without
requiring them to fill out forms. The businesses would collect the
tax and submit it to the government.